Correlation Between Daqo New and Allegro Microsystems

Can any of the company-specific risk be diversified away by investing in both Daqo New and Allegro Microsystems at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Daqo New and Allegro Microsystems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daqo New Energy and Allegro Microsystems, you can compare the effects of market volatilities on Daqo New and Allegro Microsystems and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Daqo New with a short position of Allegro Microsystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and Allegro Microsystems.

Diversification Opportunities for Daqo New and Allegro Microsystems

0.23

Correlation Coefficient

Daqo New  Allegro Microsystems

Modest diversification

The 3 months correlation between Daqo and Allegro is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and Allegro Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegro Microsystems and Daqo New is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Daqo New Energy are associated (or correlated) with Allegro Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegro Microsystems has no effect on the direction of Daqo New i.e., Daqo New and Allegro Microsystems go up and down completely randomly.

Pair Corralation between Daqo New and Allegro Microsystems

Allowing for the 90-day total investment horizon Daqo New Energy is expected to generate 1.59 times more return on investment than Allegro Microsystems. However, Daqo New is 1.59 times more volatile than Allegro Microsystems. It trades about 0.03 of its potential returns per unit of risk. Allegro Microsystems is currently generating about -0.03 per unit of risk. If you would invest  1,887  in Daqo New Energy on October 13, 2024 and sell it today you would earn a total of  33.00  from holding Daqo New Energy or generate 1.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Daqo New Energy  vs.  Allegro Microsystems

Daqo New Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Allegro Microsystems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allegro Microsystems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Allegro Microsystems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Daqo New and Allegro Microsystems

The main advantage of trading using opposite Daqo New and Allegro Microsystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daqo New position performs unexpectedly, Allegro Microsystems can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Allegro Microsystems will offset losses from the drop in Allegro Microsystems' long position.

The idea behind Daqo New Energy and Allegro Microsystems pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.